Voestalpine AG (OTCPK:VLPNF) Q2 2022 Earnings Conference Call November 9, 2022 4:00 AM ET
Corporate Participants
Peter Felsbach – Head of Group Communications & Spokesman
Herbert Eibensteiner – Chief Executive Officer
Robert Ottel – Chief Financial Officer
Conference Call Participants
Barbara Kneidinger – Kronen Zeitung
Claudia Haase – Kleine Zeitung
Peter Felsbach
Good morning ladies and gentlemen and a cordial welcome to the presentation of the half years results of Voestalpine AG. We are speaking of the period 1 of April until September 30, 2022. Very good news for every successful period that was. We are here at Voestalpine AG’s headquarters at Linz in the Blue Tower. I’m Peter Felsbach, Head of Group Communications and I’ll be your moderator.
First of all, thank you very much for being with us for listening in and we have the same procedure as usual. First presentation some 20 to 25 minutes by the management board and after that, you can ask your questions addressed and plus you have several options you can use the phone patch, you can come in via a conference call, you will receive the information later on and you can find it already on the press information voestalpine.com.
Please do that 5 to 10 minutes before and when we are at the outlook of the second half year, please wait for a few minutes before you are in, it’s also a new [Technical Difficult]. Please use this as well and the press information the pictures and videos can be found on voestalpine.com in the media area. Then on to presenters today, first we have CEO, Herbert Eibensteiner who will start, who will give perspective look on the last six months. And he will overview on the four divisions and their development and then at the end some outlook. And before I hand over to Mr. Ottel, over to Mr. Eibensteiner.
Herbert Eibensteiner
Thank you very much good morning to the presentation of the first half year 22, 23 of Voestalpine and let me get started with the current situation where do we stand and this of course also is a retrospective counts on the elapsed six months.
Generally speaking you can say that we have benefited from high demand and a good price level and we live in a business situation which is getting more and more difficult and towards the end of the first half year, we had an all-time high, year-over-year. I believe that this indeed is a very favorable and good news for all of us having had a share in this our staff of course, and in particular, all those having worked in an excellent manner in this difficult context. And over a large area, we had a very high demand in most essential market segments, what we did see was an excellent situation and development in the total field of energy, which of course goes across divisions and also has an input in most diverse fields and is certainly also driven by high energy prices and I can offer this in by saying that the sector of energy will show a very good developments in the future as well.
It’s a positive trend also and in aerospace for instance, this trend is definitely going on, you see that this is a very cyclical area and it does not surprise us that this is so and railway systems. Here as usual, we have a very solid and favorable situation but this is international business which exists on all continents and there we have excellent situation and we have a very good order backlog and but we also have excellent output which we see. And here it is solid as usual and this also means that this area also in the previous years has been very stabilizing factor also for Voestalpine business.
In the automobile industry, particularly in Europe what we also have is a very stable demand. And also on a quotient level, you all certainly know the reason, the reason is the problem of delivery chains, supply chains particularly also as we got semiconductors and I believe that we had a stable demand but on a low level.
And in the cyclical areas, particularly in consumer goods and so on and also certain parts of the construction industry, we have seen this very good trend.
What then is the situation in the individual regions in North America, there, there is also the Fed, which also had quite a high reactions and they’re also the economic trend has been the same even if the trend is still very high. And so its headcount so still what we do have an excellent environment. Towards the end of the first half year, we had a certain weakening of the business situation in Europe, but with the stable areas which I had addressed before.
In China, as a matter of fact, we have had a development, which hasn’t been so bad at all, yet in China, particularly in the first half of the half year due to large size lockdowns the economic growth and the economic perspective have clearly been worsened. And we have also felt this of course, our end and still we have mastered this period quite well. And it’s always surprising more and more development in South America and in Brazil. There we see a continued positive development in our areas.
Just a few words on the [indiscernible] what we have is a half year revenue of [9.3 billion] [ph] again a clear improvement year-over-year and the previous year was a record already and in the EBITDA we have 1.4 billion also an all-time high. And our EBITDA amounts to show the €900 million which also is by some 40% better than the previous half year.
Once again has decreased and the number of employees, our headcount has risen slightly in that last half year.
For us within the Voestalpine Group, it wants to be and remain an attractive employer, that everywhere skilled workers are missing there is an enormous shortage in this field. So we mainly focus on education and further training of our people and education for us means of course to attract young professionals, which we then train in our state-of-the-art training centers. Presently, in Austria, we have some 900 apprentices in 30 professions who will train, we have added another 409 all-time this is 100 more than last year.
And which is particularly important, is also the first educational training for all those being with us already. This is CPD continuing professional development that we spend some 500 million on this year. And maybe I should also add here that internationally speaking, we train 1400 apprentices, we have a similar system as you know in Switzerland and in Germany. And just to give you an idea, we spent some €90,000 per apprentice there.
Then, I would like to hand over to Mr. Robert Ottel, my colleague for some KPIs.
Robert Ottel
I would also like to say hello to you [Technical Difficulty] like personal encounters much more and my impression is to attain the figures have some more meaning.
So it’s a bit like all press video conferences, we are so much used to. But anyway, and you will the comparison of the first half years, KPIs compared to the previous first half year. And you see the change here in the right column almost in all KPIs we have an increase of around 40% which suggest that it has been the very special half year, particularly in the first quarter of this half year that was characterized by high raw material cost, the second quarter then was characterized by declining raw material cost but high energy cost.
What you do see here is the revenue compared to the year before from 6.8 to 9.3 almost 2.5 billion more, this particularly is due almost exclusively to the high raw materials cost we have seen this year.
Just for the sake comparison you see in the first half year that Voestalpine Group had revenue of 9.3 billion and compared to this the COVID year, the total year 2021 that was some 10.9 billion I believe.
So you clearly see that this half year was clearly characterized by the high raw material cost. Then our operating result, our EBITDA, it has climbed clearly by more than 400 million in particularly in the steel division. And in particular in the first quarter, where we had this excellent result. The second quarter then from my perspective, went back to normal so to speak, and this is still a very good one.
What we then also see, the difference between EBITDA and EBIT is that that you see this year the depreciation is higher and we have published this already in the second quarter in the HPM division, we had to do an extraordinary depreciation, the high energy cost and the volatile interest situation have process about, it does not take any cash effect or cannot be seen in the operating result.
This quarter after interest and tax, it means a profit after tax of more than 700 million. So, this 700 million has been invested into our equity. So, the financial basis of the Voestalpine Group is even stronger now. When compared half year, over half year, so in the last 12 months, the gearing of the Voestalpine Group does has gone from 55% to 33%. So, a very massive decrease. What is the situation of the gearing ratio in the long run, you see it here, gearing is the ratio between the net financial debt and the equity. And you’ll also see that this year as of end of March, the gearing ratio was kept stable. On the one hand debt this is the gray part went up a little bit. This is mainly due to higher values in the raw material storage or inventory. On the other hand, equity in the six months has been stepped up by close to €0.5 billion and this certainly is an all-time high in equity. This is the financial muscle and power of Voestalpine.
What we also very clearly see here is the equity, the book value per share also has an all time high of €42 and this is a bit clearly different from the share price. And since the business year can be appraised can be analyzed much better now, and we see such stability as the management board, we have a share buyback program which we have decided upon which will start tomorrow on the 10th of November. What is such a share buyback program? If we buy all shares at today’s price, the equity will be reduced, the debt would go up a bit. And in total, this would amount to some 4%. So, there again on today’s basis with the exception of last year, we would have the lowest debt of the last 10 years.
And on that I’d like to hand over back to Herbert for his outlook.
Herbert Eibensteiner
Yes, thanks indeed Ottel. As to the outlook for the remainder of this business year, you certainly know that the economic experts forecast some cooldown of the business situation with the second half year. And we also expect a decline of demand in the cyclical industries, like for instance, in white goods, in construction and also in mechanical engineering. We have these very stable areas like energy and the air, the upward trend is expected to continue. Same thing in aerospace where our order backlog is very good indeed.
And we expect furthermore, a stable development in the field of railway systems. And I do believe that this geographical international positioning which we are having, and also our Group’s diversification mean that we have some stable areas and some cyclic areas, which more or less outweigh each other. And this supports, of course, our revenue and our result. And this is why the management board gives an outlook for the business year 22, 23 and operating EBITDA in the bandwidth between €2.3 billion and €2.4 billion. And that, assuming of course that there won’t be any unexpected further economic distortions.
Well, ladies and gentleman, just on time, this is the end of our double presentation. And we’d now like to hand over for your questions.
Question-and-Answer Session
A – Peter Felsbach
Thank you very much Mr. Ottel. Thanks Mr. Eibensteiner for your presentations. Now you can come in with your questions. First of all, let me add that we have a new phone number, a 0800 number, please do use it and also the confirmation number for the phone patch. And then if you want to ask your questions, please press star key. On the other hand, as I said at the beginning, on the live stream, we have a chat tool now on our streaming page. Here again, you can write your questions to us. We will receive them directly and you will have the answer.
So I’d like to get started we have already on the chat, the first question [indiscernible]. This question in Sweden, there is the first climate neutral steel plant? How long it will take before Voestalpine as one and why is Austria slower than Sweden?
Herbert Eibensteiner
Well, Marcia. Good morning. First, you certainly are familiar with our green tech steel project. If you see the two locations dealing with this project, if you look into this, you will see that there is some preparatory work already for the first step of a CO2 reducing steel plant, because with green tech steel in the first step by 2020 same we want to drop our emissions by 30%. This would amount to 2.5 million tons of green steel. The preparatory work for this is going on already at the locations.
And if we say that the preparatory work has been launched, this is a 200 million worth activity, which we currently are investing into such preparatory work already. We are now awaiting for March, the final approval of the project and then construction work will start in from 2027, the 2.5 million tons of green steel will exist.
Then there will be some further steps. And I believe it’s essential to see this modular structure and procedure so that even during ongoing operation, we can decarbonize as best possible, So you’ll see Voestalpine and Austria are not lagging behind but definitely at least as good as Sweden if not better.
Peter Felsbach
Thank you very much. [Indiscernible]. How many of your apprentices you train stay in the group.
Herbert Eibensteiner
We always submit an offer to each and every individual apprentice to remain within Voestalpine. And most of them also take it. Along the years, we have been having a very higher retention rate. And we see that the fluctuation of the trained staff is much lower than the staff which we get from outside and integrate into Voestalpine. So it is a very high retention rate.
Peter Felsbach
Thanks and over to the phone patch. [indiscernible].
Unidentified Analyst
One question for Mr. Eibensteiner, you spoke about an excellent development in the field of energy and can you elaborate on what Voestalpine produce for the energy sector. What does first produce and where?
Herbert Eibensteiner
Well, we produce tubes and pipes for the gas area in Styria, Steiermark we also produce heavy plates at length for instance, for pipelines, also for drilling platforms, and also in some other areas like wind power. We produce steel constructions and structures for the now very important area of photovoltaics. And also some special demands in the high performance metals division for valves, for instance, for pumps, and for some other products, which then are also used in the arena of renewables and also some other fields of energy.
Unidentified Analyst
Thank you. Excellent. Then a question as regards the shortage of skilled labor, first, the 1400 apprentices, do you also integrate the Austrian ones here.
Herbert Eibensteiner
Yes, we have some 900 of the 1400 in Austria.
Unidentified Analyst
And you’ve also addressed a training and education you invest some €90,000 into one that was at €70,000 once I remember, why is it so much higher now? Have you changed anything, have you intensified improved things? Or is it just the increase of prices everywhere?
Herbert Eibensteiner
Well, of course, we have our training centers, which we have expanded and clearly improved and revamped and we have focused much more on digitalization. Obviously, the number of apprentices in the course of the years also have gone up more and more. And I believe that now we can also offer an infrastructure, which is certainly excellent, and is among the best which we have in the field of apprentices trainings.
Unidentified Analyst
Excellent. Thank you.
Peter Felsbach
Thank you very much. As to the phone patch you see, the number here on your screens, please press star key. And the number one if you want to ask a question. On we go in the chat room, we [indiscernible], trend newspaper in the field of energy, what about trend in wind power renewables and conventional areas of oil and gas. Can you differentiate here is there an equal amount of growth in the two fields?
Herbert Eibensteiner
Well, I can only speak for our own area, in oil and gas. There is an improvement there of course, we grow continually along with the market and what is especially in the field of renewables, there a lot is being invested particularly in the field of PV and this does not only happen in Europe, but it also happens in Brazil or in the U.S. And I believe that this very area is growing far more than the market because there is also a lot of investment. And field of wind power presently is growing, if a bit more slowly, but will also increase in the future.
Peter Felsbach
Thank you very much. Next question from the chat tool [indiscernible]. How high will EBIT, or would EBIT be without the cost inference?
Robert Ottel
I find it difficult to do this calculation, it’s an if calculation and everything is if here, I think the EBIT would be more or less the same. But in terms of revenue, you can of course, reduce that by 2 billion more in terms of raw materials costs, but you cannot separate, you cannot decouple it, I could not do that. And in terms of revenue in the half year, the raw material cost increase amounts to some 2.1 billion.
Peter Felsbach
Thank you very much. Next question, [indiscernible] Star Magazine. Which challenges do you expect for 2023? And how do you wish to encounter it?
Herbert Eibensteiner
Well, I believe the essential point for all of us in our industry is, how are we positioned how resilient are our business cases and models in a market which is worsening. I would say that this is a key topic for all of us and Europe has to grant security of supply energy wise and there are high energy prices, there are so many topics we could discuss decoupling of electricity price from gas price and so on, reduction of energy prices. So, all of that will be important for us obviously, and there is also a lot of uncertainty. And it will be a bit difficult to continue stable businesses will be a challenge also for 2023 as I said before.
We have very good diversification also internationally and in our segments and we have some segments which are very, very stable.
Peter Felsbach
Thank you indeed. Next question comes from [indiscernible] commodities. I hope I have mispronounced the name. Good morning, what is your expectation as to demand for steel in the automotive sector
Herbert Eibensteiner
Well, we know of course and you might have gathered from our outlook that the automotive situation will remain stable short-term and in the long run we do not expect any further improvement in this field. So I would say maybe as an answer to your question. We expect this that the development of the steel demand in automotive will remain on today’s level. We do not hear any further improvement soon.
Peter Felsbach
Next question [indiscernible]. In your press release, you speak about the gas supply situation more developed iron ore, because a lot of ore comes from Ukraine.
Herbert Eibensteiner
Well, our delivery path have been changed, we had raw materials from Russia, and we also had some new delivery parts for quantities which had come from Ukraine and can’t be delivered any longer. That also has been changed. And that’s also granted for raw material supply.
Peter Felsbach
Then [indiscernible]. Two questions, first an update on hydrogen in Linz. How much money will it be after the uncertainties of the last few months? What is the future perspective for further extension. And the second question on gas supply. You certainly have secured it for several months. Do you further expand this, is that possible at all?
Herbert Eibensteiner
Well as to the update of H2 future, we are having a project in the pipeline for the further use of hydrogen. This is hydrogen compaction, hydrogen cleaning in order to also use it was some further processes. That project has been planned, has been submitted. We do not yet have the final go ahead as to whether we will get any subsidies. But we believe we will have a green light in the next few months. So as to your questions, yes, this project definitely will be continued. And as to gas supply, the 1.5 terawatt gas has been stored. And for the time being the storage situation is very good. And that’s kind of an insurance policy for us in the case — in the event of a gas shortage. Presently, we keep the storage volume as it is, we don’t expand it any further.
Peter Felsbach
Thank you. Before we go back to Ms. Kneidinger, let me tell you, please use the star key plus one. If you want to ask a question by telephone. And in writing, please use the chat tool on our streaming page. So far, all questions have been dealt with. So back to Ms. Kneidinger for your next question.
Barbara Kneidinger
Thank you. Mr. Eibensteiner when answering to Mr. Marcia, you said that €200 million have been invested into preparatory work already at Linz. Can you tell us what costs €200 million there? Is this construction work has something been demolished? Or why is it 200 million already?
Herbert Eibensteiner
Let me specify maybe, the budget for this preparatory work is 200 million. And you just have to see and this applies to both areas Linz and Donawitz that we are of course, integrating steel mill into an existing one. And there of course, there are some pipings and tubings. Some preparatory work has to be done for — I don’t know for heating, ventilation, you name it, power supply, which will go across a kindergarten and be at a new kindergarten and there are many such infrastructural measures which have to be implemented.
Now while preparing for the real, fully fledged projects of green tech steel, so it’s part of it, it’s a sub-project, if you will. And you just have to see that there is pipes and tubes of three meters of diameter and they have to be re-laid and adapted and these are huge tasks and huge bits of work. That is why we have to start on time in order also to then start and launch the real work after the approval. And since I’m speaking of the kindergarten, what you might not know, we are making a kindergarten for 200 children, this is so important for us, in order also to attract more families. And in order to win over more families for Voestalpine, so we offer 200 places at our kindergarten around the clock even 24/7 in order also to attract some employees having families for shift work and the jobs we are offering. This I believe is also a major point we should highlight.
Barbara Kneidinger
When will it be operational, the childcare facilities, when will it be operational?
Herbert Eibensteiner
In springtime next year.
Barbara Kneidinger
And really 24/7 or is this just saying?
Herbert Eibensteiner
No, no, it’s really 24/7, at least a part of it, if some staff do shift work with us.
Barbara Kneidinger
And a very concrete question as to the kindergarten, there has been an existing one already. And it is now a new project, a Greenfield one.
Herbert Eibensteiner
No, there has been one, but with 80 places only. And now of course due to the high demand and the shortage of childcare facilities, we have decided to step up the number clearly to 200 children.
Barbara Kneidinger
Thank you very much indeed.
Peter Felsbach
Then again, a question from our phone patch, Claudia Haase, Kleine Zeitung.
Claudia Haase
It is much better to speak than only to write into a chat. And I’d like to speak about the medium range. Maybe you can say already, will it be 20 or 30?
Herbert Eibensteiner
What do you mean, you mean the demand for green steel volume?
Claudia Haase
Well, the demand of course, is one topic that will be fascinating to know as well. I think it will be in very high demand. But what will you be able to produce in terms of volume?
Herbert Eibensteiner
Well, in the first step, 2.5 million tons of green tech steel. This is our production capacity in the green tech steel project. And as you have heard as well, there will be a next step after 2030. And then it will grow continually.
Claudia Haase
And since you’ve said it would be a modular extension, I thought that in 2030, it will be more than 2.5 million already. But you don’t of course, want to make any promises now, but it’s going to be in rather be post 2030, will it?
Herbert Eibensteiner
Yes. It will be operational say in 2027 then we take it that a market will be created for green tech steel. And then we will have concluded our new activities and will grow along the green steel market.
Claudia Haase
How much more expensive is green tech steel than “normal steel”?
Herbert Eibensteiner
As a matter of fact, right now, the first green steel markets and prices are being created, are being formed. So it’s a bit too early I would say to speak about prices which will then exist in 2027, maybe.
Claudia Haase
What about hydrogen in the medium run? How can that be integrated? Will it play a part there in?
Herbert Eibensteiner
Well, hydrogen for us will then be important in a second step or in some further steps post 2030. You certainly know that in Styria as well, we are working upon some technologies with hydrogen as to pre-material for the steel production. And we take it in order to really decarbonize that there again, hydrogen will play a major part. This is why we have all these projects in the fields of hydrogen.
Claudia Haase
And there is no time lag, no delay in hydrogen no say time gap between project old and project new, is this hampering you, anyhow is it, are is it not so important?
Herbert Eibensteiner
No, no, I think here we are still in the field of research and development and the quantities we are producing right now are available even now. So, I think the final approvals for this project will come and then we will go on. Thank you.
Peter Felsbach
Thank you. And this takes us to a final question, a second one from Mr. [indiscernible].
Unidentified Analyst
As to the real property sale amounting to 120 million, which plot or piece of land is it and who is the buyer?
Herbert Eibensteiner
It’s at Dusseldorf, Germany from the former [indiscernible] Group, which isn’t used any longer by us. It’s rather used by some other tenants. So it has no strategic importance to us any longer. The buyer is a real estate group, or developer and we do not yet know because there are several interested parties.
Endof Q&A
Peter Felsbach
Okay. Thank you very much. Ladies and gentlemen, thank you. And this is the end already of our press conference call on the half year 2022/2023. Thank you very much to the two presenters, to the management, thanks to the team. Thanks to you for your questions and for listening in for having taken the time. Back early in February with the figures on Q3 and we wish to you and your families all the best, please stay healthy. See and hear you soon. Bye-bye.
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